The Rebound that Stayed Flat

I’ve been working to draw a graph that compares employment trends since the end of the Great Recession with other important trends in the economy, and also with earlier periods. Here’s what I’ve come up with (click on the graph for a bigger pdf version, and click here for a spreadsheet with the graph and all its data):

Using data from the invaluable online resource FRED (and with the help of an equally critical real-world resource, my RA Noam Bernstein), I’ve plotted the trends since 1995 in US GPD, total corporate investment in equipment, and total corporate profits from non-financial companies (and also for all companies, including financial ones). I set the January 1995 value for each of these equal to 100 to allow comparisons across them over the years.

I also plotted the US employment-population ratio, or percentage of working-age people who have jobs (the axis for this line is on the right-hand side of the graph).

The overall impression I get from this graph is one of divergence over time. There’s a steady, slow-growing black line in the middle. This is GDP growth, climbing along at a bit less than 3% per year. Then there are a couple volatile and quick-growing graphs that wind up well above GDP. These are profits (blue) and investment (green), both of which are about 2.5 times as high in mid-2011 as they were at the start of 1995. GDP, meanwhile, increases by only about 50% over that period.

And then there’s the employment ratio (red), which declines by almost five full percentage points over the same period, from 63% of the population to 58.1%.

When I look at this graph I see evidence of the computer age everywhere. After the recession of 2001 ended profits came roaring back and equipment investment eventually started ramping up sharply, but the employment ratio increased only between September of ’03 and December of ’06, the most frenzied time for both the construction and financial industries.

And since the Great Recession officially ended in June of 2009 GDP, equipment investment, and total corporate profits have rebounded, and are all now at their all-time highs (non-financial profits are near their historic high). The employment ratio, meanwhile, has only shrunk and is now at its lowest level since the early 1980s when women had not yet entered the workforce in significant numbers.

So current labor force woes are not because the economy isn’t growing, and they’re not because companies aren’t making money or spending money on equipment. They’re because these trends have become increasingly decoupled from hiring — from needing more human workers.

As computers race ahead, acquiring more and more skills in pattern matching, communication, perception, and so on I expect that this decoupling will continue, and maybe even accelerate. This doesn’t mean that companies are about to stop hiring altogether; there are still plenty of things that humans alone can do. But it means they’ll need to hire at an ever-lower rate, compared to how quickly they’re growing, making money, or buying equipment. Because America’s working age population will continue to grow for at least the next few decades, I predict that the employment ratio will not start to trend upward in the coming years. If anything, I think it’ll decrease.

Do you agree? If not, what trends do you see that will cause the employment ratio to increase? What force(s), in other words, will be more powerful than the technology improvements we’re going to see? Leave a comment, please, and let us know.